By on January 3, 2011

Fiat split its auto business from the rest of its industrial operations today, creating two new companies: Fiat and Fiat Industrial. Fiat CEO Sergio Marchionne announced the move as a way for Fiat to unlock its share value and concentrate on its core business, telling the AP [via Newser]

This is a very important moment for Fiat, because it represents at the same time a point of arrival and a point of departure. Faced with the great transformations in place in the market, we could no longer continue to hold together sectors that had no economic or industrial characteristic in common.

But with Fiat Industrial taking care of the truck-and-tractor side of the business independently, Fiat SpA is focusing on the task at hand: Chrysler. With a 35 percent stake in the bailed-out American automaker in the bag, Fiat is aiming for a controlling stake when Chrysler’s IPO hits the markets later this year. And though the spin-off of FIat’s non-automotive business opens the door for a full merger of Fiat and Chrysler, Marchionne denies that a full merger will take place, saying only that

I don’t know whether it is likely, but it is possible that we’ll go over the 50 percent mark if Chrysler decides to go to the markets in 2011. It will be advantageous if that happens.

But don’t mind Sergio’s equivocation. Fiat will almost certainly snap up the remainder of a controlling stake by the end of this year. Here’s why…

After Fiat starts selling the Cinquecento in the US, it will have fulfilled its obligations to the US government to build an efficient engine in the US (which it ships to Mexico to be installed in the Cinquecento), and sell a 40 MPG+ vehicle in the US. Along with other “vague financial and developmental goals, hashed out with the U.S. government” these conditions will give Fiat its 35 percent stake, and once the government’s loans are paid back Fiat has an option to by the final 16 percent needed for a controlling stake before any Chrysler IPO. And the benefit to that, according to a UBS analysis [via the BusinessWeek], is that

Fiat may pay $900 million to $1.7 billion for the stake before a Chrysler IPO while the same stake could be worth between $1.9 billion and $4.4 billion after the listing… a pre-IPO transaction could save Fiat between EUR1 (billion) and EUR2.7 (billion) compared to a post IPO deal,

Considering that Fiat got its 35 percent stake for no money down, that adds up to a screaming deal. Especially if you buy the claim that a revamped Chrysler could double Fiat’s share value. On the other hand, Fiat’s Chrysler stake currently carries a book value of zero, and as a Credit Suisse analysis puts it

Despite much excitement surrounding Marchionne’s statements about raising Fiat stake in Chrysler to 51 percent ahead of an IPO in the second half of 2011, we remain skeptical about its ability to address the contractual hurdles detailed in the LLC agreement and achieve this event ahead of an IPO

Davide Manenti, a fund manager at Nuovi Investimenti Sim adds:

There’s been more volatility in Fiat and that’s where we should see more price movement over the coming weeks. It’s linked to greater uncertainty from the Chrysler issue and the car market outlook in Europe and the U.S

But, despite all the speculation surrounding Fiat’s potential Chrysler acquisition, Marchionne insists that it’s not considering divesting any of its assets in order to fund any expansion or alliance. Though Ferrari may well be spun off in the future, as may Fiat’s parts business Magneti Marelli, Fiat insists that it has the money to deal with all potential opportunities in the short term. But then, Sergio Marchionne has become so good at getting something for nothing, it would be downright surprising to see Fiat raising cash to fund an acquisition.

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12 Comments on “Fiat And Chrysler: Alone At Last...”

  • avatar

    Maybe FIAT will end up spending as much as they got from GM about ten years ago.  They put it to good use designing the Panda, new Punto and 500.  Hopefully we’ll all get better cars from it.

  • avatar

    But what will become of the K-car?
    A distant memory?
    Will a re-worked version of the Duster, the Road Runner, etc. akin to today’s Camaro/Mustang/etc. be forthcoming?
    Will the masses, again, hear the “beep-beep” horn of the Road Runner on the local cruising strip IF your town/city/burgh/villa still has one?
    Where ARE the truly important questions/answers an Old Coot not only expects but demands.
    I betcha’ those Fiat execs wear snazzy Italian business suits.
    They are obviously too good for JC Penney apparel.
    Or the Men’s Wearhouse.
    Dern’ feriners.

    • 0 avatar

      Actually Marchionne wears sweaters (see the photo above) and looks a little bit schlumpy. Over the years of working the shows I’ve gotten to be friendly with one of the Maserati guys. Once he was wearing a really nice charcoal gray pinstripe suit with some brown suede running shoes. I looked at the shoes and asked if he deliberately matched brown and gray. He smiled and said, “But of course, I’m Italian”.
      Still, the guys wearing the nicest suits tend to be the Germans.

    • 0 avatar

      Those nice German suits sure did a nice job with Chrysler, NOT!
      I much rather have Sergio sweater at Chrysler than the Germans crisp suits anywhere near Detroit … not that they ever came over here anyway.
      Ronnie, my comments are not aimed at you. You’re just the messenger.

  • avatar

    Hard to see the synergies making big money for Fiat.  Aside from Jeep, there isn’t a single Chrysler product that translates well internationally.  And the Fiat B and C segment products may be ok, but are they notably better than the Fiesta, Focus, Cruze, Corolla, Fit, Civic, etc?  Enough to get buyers into Chrysler/Dodge showrooms who have never visited one?  Oh, and this won’t happen for another year or so at the earliest.

  • avatar

    I don’t think Fiat has 35% of Chrysler yet; according to the LA Times (and I remember this as well):

    The Los Angeles Times explains, “That agreement allows Fiat to obtain a 20% equity stake in Chrysler, with incentives to increase its share of the company to 35%. Fiat’s stake would rise by 5 percentage points when it provides distribution for Chrysler cars outside of North America, an additional 5 when it introduces a new, fuel-efficient engine to be built in Chrysler’s U.S. factories, and 5 more when it builds a car that gets 40 miles per gallon in Chrysler factories.”

  • avatar

    Before, it was exciting to know that Mercedes platforms and engines, even of prior generations, made their way into Chrysler products – there was a gleam of hope, but all to no avail as Mercedes bailed and Chrysler is back to its own junk.   Today, what kind of deranged American consumer is going to give a flying … that some Punto’s part made its way into Dodge Caliber?  Seriously?  Looks like for once US Gov made a decent deal by giving trash Chrysler to Fiat and setting it up for epic failure in the US market.  Again.

    • 0 avatar

      tallnikita, Are you mis-informed or just stupid?

    • 0 avatar

      Only the time will tell.  No Fiats in the US market by 2015 – wanna put your money on it?

    • 0 avatar

      I’ll put a $20 on it. There are 2011 model Cinquecentos on-the-ground as I am typing this.

      And, drop the attitude. The smell of crap isn’t coming from Chrysler’s product– it’s coming from your upper lip. You’ve obviously been sucking your preferred manufacturer’s  anus a bit too hard and can’t see past it’s rear-end any longer.

      Now, send me that $20. :)

      P.S. I always found it weird– the 3.2/3.5 V6 incest at DCX. Were there both Chrysler/MB 3.2/3.5 V6s, or did one company poach from the other? I find it hard to believe MB would allow their engines to be installed in the 1998 Intrepid. It seems so early for these new-tech MB V6s to find their way into a 1998 refresh whenever the merge happened what– 3 months prior to its release? 

      It always felt, to me, like Chrysler provided MB with modern V6 engine technology. I’m American, though– wouldn’t have any idea about MB technology available in the old world. Someone clue me in!

  • avatar

    You know, OBBOP has a point. What if Chrysler DID re-invent the K Car? A car that looks like a car, a traditional 3-box structure with nice, crisp linear lines? Modernized, of course, with better everything. I owned a first-year Reliant and we loved it! Kept and drove it for 7 years. Also had a 1984 E-Class. Had it for 7 years, too. Just musing and probably dreaming. Something to kick around.

  • avatar

    The PL/PT chassis spawned a coupe, sedan, crossover and convertible, that’s pretty close!
    I’m eagerly awaiting the Chally-Sourced Imperial Coupe. Dark purple pearl with a brushed aluminum roof, please.

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